SoarerCentral: Archive through May 04, 2007

SoarerCentral General Soarer Chat NOVATED Lease HELP. Can anyone wrap their head around this Archive through May 04, 2007

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Miles Baker
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Thursday, May 03, 2007 - 11:18 pm, by: Miles Baker (Milesb)

My questions are legit, and Daniel has the numbers right there, and the knowledge regarding stamp duty.

I know I have done the maths for my lease, but my car's value, ap/depreciation curve is different and my income situation is different. For me it works out better to pay the higher interest every year but it is something to take into account and I'm not sure what effect it has at different tax brackets (and FBT rates - I do loads and loads of km). I haven't done the numbers and I can't be stuffed opening Excel. Daniel has the numbers right there and he can just type it in.

Hence the questions. Serious questions. Clearly I was not being argumentative and was just contributing to the conversation. The dude is making financial decisions and I have a little experience in the area. Thought I might try and help.

Daniel Czechowski
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Thursday, May 03, 2007 - 11:29 pm, by: Daniel Czechowski (Dan)

Adam Sanders wrote on Thursday, May 03, 2007 - 10:17 pm:
Is there a comparison that can be made for owning it compared to selling it to them and leasing it back?

Yes, the fact that you would have normally spent 23,396 on running costs over the three years (53947-30551 from my spreadsheet above) had you owned the car, plus depreciation on your car of 11K (26K - 15K) you'd be looking at overall cost of 34,396 over the three years anyway. So slightly more than leasing. You also have to take into account the fact that you're getting $26K up front in cash which you could potentially invest rather than have it tied up in a depreciating asset. The gains there would of course vary depending on what you put your money into, but in your situation it is still beneficial, provided you keep up the kilometres. The above of course is a rough estimate I just gave you

Gregg Holden wrote on Thursday, May 03, 2007 - 10:46 pm:
Daniel is right in adding the extra expenses post tax but it's not the full amount as part of those expenses were part of the novated lease pretax benefit. I can't be assed right now working out the exact percentage but it certainly wouldn't be the full amount.

I'm not exactly sure what you are referring to Gregg. The running costs I included in the loan comparison side, are all inclusive within the lease and paid pretax, all of them

Miles Baker wrote on Thursday, May 03, 2007 - 10:46 pm:
If he pays the lease out after one year and then starts a new lease on the same car, how is there any stamp duty payable?

That's correct, well, at least here in WA, not sure about eastern states, but I wouldn't be surprised if it wasn't though, you guys have a lot more lenient stamp duty regime that us westies do. It is actually worth it for us to buy a car over there and ship it here in WA, paying NSW or VIC stamp duty, and transport costs, and still save money by not paying WA stamp duty dammit! Ah well...

Miles Baker wrote on Thursday, May 03, 2007 - 10:46 pm:
Also, how are the effects of the increased interest load? ie every year you start a new lease at $25k.. so while the deduction is higher, the interest is too. How goes the numbers on that? End up better or worse out of pocket?

No, the lease base amount would decrease over time due to car's market value, wouldn't constantly stay at 26K.

Daniel Czechowski
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Thursday, May 03, 2007 - 11:34 pm, by: Daniel Czechowski (Dan)

Daniel Czechowski wrote on Thursday, May 03, 2007 - 11:29 pm:
Yes, the fact that you would have normally spent 23,396 on running costs over the three years (53947-30551 from my spreadsheet above) had you owned the car, plus depreciation on your car of 11K (26K - 15K) you'd be looking at overall cost of 34,396 over the three years anyway. So slightly more than leasing. You also have to take into account the fact that you're getting $26K up front in cash which you could potentially invest rather than have it tied up in a depreciating asset. The gains there would of course vary depending on what you put your money into, but in your situation it is still beneficial, provided you keep up the kilometres. The above of course is a rough estimate I just gave you

Sorry, need to clarify myself here, yes, add to the cost of owning the car the fact that you will be in a posession of a 15K vehicle still. However, add to the leasing costs the fact that you will also be in a possession of 26K cash, or more if you invest it wisely.

Miles, what exactly do you have, a financial lease, operating lease, or a hire purchase agreement?

Greg Nikitiuk
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Thursday, May 03, 2007 - 11:45 pm, by: Greg Nikitiuk (Jestr)

don't panic :-)
all input here is appreciated.
My new commodore is leased and most numbers here are very accurate.
Lease company is in it to make money, so no matter how you carve it, leasing car is more beneficial for higher income people. If you do a lot of km, don't really care who does your car's servicing, what oil they use or how they treat it, etc.

If you're time poor, don't like looking after your car too much, sure it is fine.
When you done with your lease, you pick another.

All the calculations showed me that I'm "worse off" financially to the tune of $30 per week on my lease.
However I consider this a fair price for piece of mind as the car is fully maintained, including on road assistance

Adam, I suggest you seek an independent advise from an expert in this field

Miles I never said you are argumentative
BTW how did you get novated lease on a 41 yr old car??

Miles Baker
DieHard
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Thursday, May 03, 2007 - 11:58 pm, by: Miles Baker (Milesb)

Daniel,
*shrug* novated lease. Phoned finance agent, told him I wanted a novated lease for my company to pay pre-tax, he gave me the numbers, they checked out, I signed. Gotcha on the decreasing value.. that's where the difference is and why I had to take it into consideration but it's not relevant here. Also gotcha on the stamp duty.. can't believe anyone can actually have it WORSE than us! 4% seems like such a screw over to me.

Greg,
I just called around. And around. And around. It's just up to the finance company. Very very few do it.

Regarding the maintenance costs Greg - you can actually pay that stuff out of your pocket instead of getting a managed lease. Then you can claim what you paid as an offset against the FBT. It works out better because the FBT rate is higher than most people's tax bracket. Managed/maintained lease was never on the cards for me.. I am very picky about who touches my car - ONLY ME! Also as you said, they only offer it to make money. Like health insurance with extras.

Greg Nikitiuk
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Friday, May 04, 2007 - 12:15 am, by: Greg Nikitiuk (Jestr)

Miles Baker wrote on Thursday, May 03, 2007 - 11:58 pm:
am very picky about who touches my car - ONLY ME! Also as you said, they only offer it to make money. Like health insurance with extras.

Spot on there mate, they do all servicing on the cheap, My SC commodore gets crappy mineral oil and very basic servicing. They only replace things when they fall out on the road :-)
you wouldn't let anyone or worse pay anyone to treat your soarer or LS like this

Gregg Holden
Trader
WA
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Friday, May 04, 2007 - 12:39 am, by: Gregg Holden (Xzotic)

Daniel, In your calculation you still haven't accounted for how the residual gets paid off under the novated vs bank comparison...You simply assume that at the end of the 3 years that Adam will have $13000 in cash to pay it out under the novated lease. If he doesn't he would have to refinance to pay it hence incurring additional interest which is not reflected in your spreadsheet or re - lease which may not be possible due to age constraints/depreciated value etc at that point in time...

Gregg Holden
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Friday, May 04, 2007 - 12:53 am, by: Gregg Holden (Xzotic)

The other "gotcha" you need to consider other than prescribed maintenance requirements of the lease (Which may actually be more than you really need especially where you are doing self maintenance - oil changes etc) is where you decide to leave the government sector to join the private sector.

You may not be able to transfer the lease to the private company as they may not offer leasing packages and if they do it may be with another lessor.

At the end of the day Leasing makes good sense if you don't own a car and you lease a late model car like a Holden/Ford, are not worried about the maintenance schedule and intend to keep upgrading vehicles to a newer model. Under this approach you are simply paying a lower over all "rental fee" than you would if you bought it under a loan but of course you would never own it.

For older cars especially where you intend to customise it simply may not be worth it in the end.

Callum Finch
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Friday, May 04, 2007 - 08:21 am, by: Callum Finch (Sigeneat)

Leon, you realise we all know your annual income amount now, right?
So does the rest of the internet! ;)

Benny Gammelmark
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Friday, May 04, 2007 - 10:20 am, by: Benny Gammelmark (Oldfield)

One thing to consider is if you have multiple customers that you visit.

If you do and you make this your "company car" and keep a log book then you can write off the percentage used as business of all your expenses on the car, this includes 22.5% of the residual value of the car each year.

This is what I do. It does not matter if you already own the car, the deduction is the same.

If you have, say 75% business use of the car then you can write off 75% of all your expenses, plus 75% of 22.5% of $26,000 the first year (makes $4,387.50).

You will get a nice fat cheque from the tax department every year. The first year I did that I got $10K back (more expensive car though).

... oh, and NO FBT.

EDIT: And no minimum distance either, just prove it with a log book (to be kept for 3 months).

Leon Wright
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Friday, May 04, 2007 - 11:16 am, by: Leon Wright (Techman)

Callum Finch wrote on Friday, May 04, 2007 - 08:21 am:
Leon, you realise we all know your annual income amount now, right?
So does the rest of the internet! ;)

How?

Daniel Czechowski
Goo Roo
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Friday, May 04, 2007 - 11:24 am, by: Daniel Czechowski (Dan)

Ok, one thing that I just realised I need to clarify is that with one year lease I showed above, times three years, it assumes you sell your car and get a new one each year. This is usually the reason for leases anyway, as Greg N has said, as you get rid of the car and get a new one after, and it costs you sweet FA, as the car's depreciation is offset by your tax savings, so you almost get the car for free. You can however start a new lease on the car after it finishes, which is how you finance the remainder, as questioned above by Gregg H. Except the lease amount will be smaller, I suppose I can modify the spreadsheet above, but it is only obvious that due to a smaller lease each following year, the actual costs will be smaller still than if you were to have a loan on the car for full three years. For instance, the first year, you have the car's Base Value at $26K. The following year, the car's residual value is 17K, which is what your lease will be renewed on, and your fortnightly lease payments will be reduced accordingly. After second year, the residual will be 11K, coming into third year, you may start another lease again, with lower repayments once again. One thing however, is that some lease companies do not bother with leases below certain amount. Some won't with leases under 15K, some won't with leases under 13K. You'll need to check it out.

All really depends on what Adam wants to do in the future. Does he want to keep the car for longer than 3 years, or will he be happy to sell it after 3 years and get a different car.

Also, if you use the car for business, then your FBT will reduce accordingly. Get a log book, see what business percentage you get and you'll be laughing. Say you use it 60% for business, your FBT above will reduce by 60%.

Also, as Miles has mentioned above, Operating leases might not be the best if you use your car for private purposes mostly, as you pay FBT on the running costs. If your car is mostly private, and you get a finance lease instead that just pays for the lease, but you take care of your operating costs yourself, it works out better for you. Sure, you may pay the running costs with your after tax dollars, however, every after tax dollar you spend on running the car (even if it is private) will count against your FBT, making it possible to reduce it down to NIL. That is called employee contribution.

In summary, if your car is used mostly for business, go for an operating lease as your before tax dollars pay for the running costs, and the FBT charged on top is proportionally reduced, based on the business percentage.
If your car is used mostly for private pruposes, go for a finance lease, and pay FBT only on the lease alone. That FBT amoutn can be further reduced by paying all the running costs with after tax dollars.
Of course, at the end of the day, which one is better and which one isn't will depend on the actual numbers we are working with. Let us know your business usage and stuff and we can modify the spreadsheet easy

Daniel Czechowski
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Friday, May 04, 2007 - 11:28 am, by: Daniel Czechowski (Dan)

Callum Finch wrote on Friday, May 04, 2007 - 08:21 am:
Leon, you realise we all know your annual income amount now, right?
So does the rest of the internet! ;)

Leon Wright wrote on Friday, May 04, 2007 - 11:16 am:
How?

Haha, I think Callum was referring to Adam haha. Callum you dope!!!

Adam Sanders
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Friday, May 04, 2007 - 12:03 pm, by: Adam Sanders (Abz)

Ok guys Thanks for all the input however I can not see any savings no matter how I calculate.

Can someone advise if I am correct here.

The way I figure it is IF i do not get the loan and stick how I am I will be taking home $2154 a fornight x 26 which is $56000. Subtract estimated 7700 on running costs I will end up with 48300 in my pocket.

Now if I do the lease ill take home 1545 x 26 = 40200 plus the $26000 fr the car which is 66000. Minus the 18560 to rebuy ill end up with $47500.

Give or take a few hundred either way that means its about the same isnt it?

Am i missing something?

Leon Wright
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Friday, May 04, 2007 - 01:02 pm, by: Leon Wright (Techman)

Daniel Czechowski wrote on Friday, May 04, 2007 - 11:28 am:
Haha, I think Callum was referring to Adam haha. Callum you dope!!!

That's what I figured... Lets see what the boy has to say for himself

Miles Baker
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Friday, May 04, 2007 - 01:35 pm, by: Miles Baker (Milesb)

Daniel,

If you use the statutory formula method (FBT calculated on % of car's capital value), you can still pay operating costs pre-tax right?

Adam Sanders
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Friday, May 04, 2007 - 02:14 pm, by: Adam Sanders (Abz)

Leon Wright wrote on Friday, May 04, 2007 - 01:02 pm:
Daniel Czechowski wrote on Friday, May 04, 2007 - 11:28 am:
Haha, I think Callum was referring to Adam haha. Callum you dope!!!

That's what I figured... Lets see what the boy has to say for himself

haha I thought that was a bit funny.

Daniel Czechowski
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Friday, May 04, 2007 - 02:17 pm, by: Daniel Czechowski (Dan)

Ok, Adam here's a more accurate spreadhseet for you. You've made a couple of mistakes in yours.

Of course, you will be worse off in your pay packet, however you will be able to recoup the losses on disposal of the car. This is where you have to decide how long you want the car for, what you will do with it after lease etc etc to figure out how it will affect you in the long run.

But in short, your net pay will be 25,346 higher if you own your car, however you would have lost (assuming car is worth 15K after three years) $11K in depreciation, while you own a $15K car.

However, on lease your pay would have been 25,346 lower over three years, however you would have pocketed $26K in cash on sale, have a car worth 15K on sale, with residual of $12K, leaving you with a $3K profit on sale.

As you see these amounts differ from what I told you in my first worksheet, because you have changed some numbers around. Perhaps you chose a 1 year lease? My numbers here assume a 3 year lease. Why is the Vehicle Lease Rental figure in your worksheet so much higher than the one before? Let me know and I'll adjust my spreadsheet accordingly. I do not think the above I just wrote is correct for that very reason.

If that is not a 1 year lease figure, then give me a lease figure for a 1 year lease and I'll go through it and show you how much better it is

Daniel Czechowski
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Friday, May 04, 2007 - 02:20 pm, by: Daniel Czechowski (Dan)

Miles Baker wrote on Friday, May 04, 2007 - 01:35 pm:
Daniel,

If you use the statutory formula method (FBT calculated on % of car's capital value), you can still pay operating costs pre-tax right?

Yeah that's right. You can choose any method to calculate your FBT, in fact it's best to calculate both methods at once and see which one comes up with a better result, and you can use the lower one. You can swap from one method in one year, to another in another year no problem, whichever suits you better.